The South African Reserve Bank has released a research note on contributions to medical aid in South Africa and the impact of the Covid-19 pandemic on prices.
Discovery published a white paper in May of last year, quantifying the likely medical costs of Covid-19. Claims were expected to be between R 7.3 billion and R 31.8 billion by June 2021.
This would have been equivalent to additional costs of R 816 to R 3,561 per beneficiary. This provided a formal statement of a common intuition that Covid-19 would drive up medical costs and fuel higher inflation in medical insurance.
Contrary to those expectations, Covid-19 and associated foreclosure restrictions have so far resulted in less use of insurance, the Reserve Bank said.
“People are reducing visits to medical facilities as much as possible to avoid exposure to the virus. The closures also limited mobility and access to alcohol, which are common causes of harm. For example, non-traumatic surgery admissions fell almost 50%, from 7.96 to 4.49 per day.
“By itself, Covid-19 has obviously created new medical costs, but its net effect on the medical industry has actually been to cut spending,” the central bank said.
Accumulation of reserves
In this context, medical plans began to accumulate additional surpluses. Discovery’s net surplus has grown from 2.7% in 2019 to approximately 6.5% in 2020.
These surpluses will fuel reserves but are not expected to stay high indefinitely, as beneficiaries undertake postponed procedures and terms and conditions normalize, the Reserve Bank said.
“However, plans don’t need to hold such large reserves, so most plans return them to beneficiaries by implementing smaller increases in 2021.
“Based on SARB data collection, therefore, medical insurance inflation is expected to average 5% in 2021. This will reduce headline inflation by 0.3 percentage point and headline inflation. services by 0.7 percentage point. “
Data shows that the five-year average of the country’s major medical plans was around + 10%. By comparison, members of Discovery Health, the country’s largest open medical plan, will pay an average of + 3% in 2021.
Likewise, Bonitas, Momentum and Bestmed all announced average increases of less than 5%.
* Bestmed clarified that its average increase in 2022 is 3.9% and not the 4% included in the SARB chart.
Expect to pay more next year
On the bright side, demand could increase in 2021, given both stable demand and catching up from 2020, the Reserve Bank said.
“Practitioners can also work longer and raise prices to meet this demand. Costs related to Covid, including vaccines and chronic symptoms of the virus, will increase spending. There could also be higher health care costs associated with other conditions that are not diagnosed or treated in time. “
In contrast, the supply of medical services is relatively inelastic, which likely limits the scope for catching up with consumption of medical services, the central bank said.
“Additional waves of Covid-19 and lockdown measures could further limit medical spending, as they did in 2020. Finally, the 2020 experience revealed areas of inefficiency and overuse – information that could help reduce cost pressures in the future. “
In January 2021, the forecast of the SARB’s disaggregated inflation model has medical insurance inflation at 9% for 2022 – implying that the 2021 moderation is purely temporary.
“Medicare inflation has long been high relative to the headline CPI. This trend was disrupted by Covid-19, which led – unexpectedly – to reduced use of benefits and therefore to a smaller increase in contributions to the 2021 medical scheme, ”the Reserve Bank said.
However, this does not correct structural problems in the medical industry, so medical insurance inflation is expected to return to pre-crisis levels from 2022, he warned.
“As a result, we forecast health insurance inflation of 5% in 2021, down 4.5 percentage points from 2020, with inflation rebounding to 9% in 2022.”
Read: 5 big changes coming for Discovery medical aid members in 2022